HONG KONG

Hong Kong's Property Market at a Crossroads

Hong Kong’s ailing residential property market is again looking north for support.

PRC developers were particularly active in Hong Kong in the first half of 2016 as they pressed on with their globalisation plans, acquiring three of the first eight residential sites sold via public tender.

Mainland Chinese developers will remain an integral part of the city’s residential development landscape in future, as they continue to expand globally and use Hong Kong as a stepping stone to build their brand profile and credibility,” says Henry Mok, Regional Director with JLL’s Capital Markets team.

“They may be less aggressive than a year ago given faltering sentiment in the overall market and an increasingly competitive development environment, but remain active in the land sales market," he adds. According to land sale results announced by the government in early August 2016, a residential site was sold to a PRC developer for a consideration that is 40% above the higher end of market expectations.

Home sales reached their lowest levels on record in the first quarter of 2016 before recovering slightly in the second quarter. Average monthly sales volumes in the first half fell 38.3% y-o-y to 3,320, compared with the monthly average of 5,377 recorded in the corresponding period in 2015. The second half of the year is expected fare better, as more buyers return to the market to look for bargains.

"With more than 35,000 units looking to be launched onto the market over the next 12 months, developers will have to continue to use aggressive sales tactics to draw buyers,” Joseph Tsang​, Managing Director and Head of Capital Markets at JLL, told a mid-year property market briefing.

He pointed out that housing prices in districts such as Yuen Long and Tsuen Wan, which have the greatest number of new launches in the coming 12 months, are likely to be under the most pressure.

“Despite the recent signs of stabilisation, we maintain our view that capital values of mass residential property will drop 10-15% this year, while luxury residential will decline 5-10%," Tsang said.

One sector that has continued to buck the trend, however, is the ultra-luxury property market, where buying interest remained largely intact through the first half of the year.

A total of 55 properties priced over HKD100 million were sold, 15% less than the corresponding period a year earlier; and the average transaction value rose by 8% to HKD304 million, reflecting the willingness of buyers to pay a premium to secure properties that rarely come onto the market.

“Looking ahead, given where prices and yields currently stand, larger transactions will be dominated by cash-rich end-users with a longer-term view of the market, eyeing rare-finds in a tight supply pipeline for ultra-luxury homes,” Tsang concluded.